Daily Market Data Dump: Monday

Takeaway:A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products.

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PCLN | Is Airbnb a Threat?

Takeaway:The data suggests that the marginal impact from Airbnb should be negligible moving forward.

The Airbnb threat is a major tenet to the prevailing short thesis on hotels and the OTAs. Indeed, our work on Airbnb, including the use of the Hedgeye proprietary Airbnb listings dataset, suggests a negative impact on the US hotel market and potentially the domestic OTA segment. However, as we will show in this note, Europe is an entirely different market. With PCLN generating the majority of its bookings and revenues in Europe, we believe the marginal competitive impact from Airbnb going forward will be slight.

KEY POINTS

AIRBNB EUROPE: ALREADY DENSE/GROWTH SLOWING: As a reminder, PCLN is most exposed to the EU, which is where we will focus this analysis. Our Airbnb density analysis suggests the EU was an early adopter of Airbnb, but we have yet to see any material impact on EU hotel RevPAR to date.

EU MARKET ALREADY EXISTED: The alternative accommodation market was already well established in the EU well before Airbnb, which has had a mixed to muted impact on that market. In turn, we suspect all Airbnb is doing is facilitating that market, vs. the US where it is essentially creating it.

SHOULD HAVE SEEN IT BY NOW: It’s possible that Airbnb may have had an impact on PCLN already, but it wasn’t large enough for anyone to take notice. Given that Airbnb density growth is already slowing, we believe the impact moving forward will be limited as the second derivate impact will likely continue to wane.

AIRBNB EUROPE: ALREADY DENSE/GROWTH SLOWING

There is little doubt that European consumers were early adopters of the Airbnb platform, most likely due to the alternative accommodation market that already existed there. As can be seen in the following chart, Airbnb density – defined as Airbnb listings as a % of total hotel rooms – was and is much higher than the rest of the world. Moreover, up until last year, Airbnb listings growth in Europe exceeded the rest of the world as well.

It’s difficult to gauge the Airbnb impact on European RevPAR over the last few years given the volatility of the region and exogenous factors (i.e. terrorist attacks, Greece, refugee crisis, etc.). Maybe hotels were affected, maybe not. However, we posit that given the high Airbnb density already in the European market, and slowing growth, the incremental impact to the hotel industry and PCLN is likely to be insignificant.

In contrast, US hotels may be more at risk. In our Airbnb presentation on March 17th, we estimated the 2015 Airbnb impact could’ve been around a negative 100bps. More importantly, the negative Airbnb impact is likely to persist given the relatively density yet higher listings growth. The chart below compares Airbnb density in the top European hotel cities with those in the US. The implications are clear: Europe may or may not have already felt the brunt from Airbnb already but it’s not likely to be much of a factor going forward. The risk to the US is more palpable.

EU MARKET ALREADY EXISTED

We believe one major reason why Airbnb is having a limited impact on EU hotel RevPAR is because the alternative accommodation market was already well established before Airbnb arrived. Further, it appears the introduction of Airbnb in the EU is having a mixed to muted impact across this market. In the US however, it appears that Airbnb is expanding the alternative accommodation market; Phocuswirght estimates that the percentage of US travelers staying in alternative accommodation has grown from ~10% in 2011 to 25% in 2014.

We have segmented the EU accommodation market by nights stayed at traditional hotels vs. that of holiday establishments, which are essentially self-contained lodging units with minimal, if any, complementary services (i.e. alternative accommodation). The data suggests that the latter was already well established in the EU, particularly amongst the top 5 countries, which make up roughly 75% of all accommodations nights. The percentage of holiday nights to total accommodation nights across these 5 markets has ranged from 11% to 41% dating back to 2006.

The impact from Airbnb on these markets has been mixed to muted at best. Generally speaking, markets that have historically had a relatively low percentage of alternative accommodation nights have increased as a percentage of the total, with the UK seeing the most dramatic increase. On the other hand, markets with a relatively higher percentage of alternative accommodation nights (i.e. Germany & France) have declined as a percentage of the total.

These conflicting data points suggest that Airbnb isn’t necessarily expanding the alternative accommodation market, but rather facilitating a market that existed well before it got there.

SHOULD HAVE SEEN IT BY NOW

It’s possible that Airbnb may have had an impact on PCLN already, but it wasn’t large enough for anyone to take notice. Airbnb experienced its sharpest growth in both absolute listings and density during 2015; a period where PCLN produced stable to accelerating room-nights growth. Maybe PCLN’s growth rate would have been higher ex Airbnb, but we don’t have anything to suggest that would have been the case.

Moving forward, we suspect that PCLN has already experienced the brunt of any impact from Airbnb given that EU density is ~2x that of the ROW, and density growth has already started to slow into 2016. From a second derivative standpoint (accelerating vs. decelerating trends), that means Airbnb is likely to have a waning impact on PCLN into 2016, and likely moving forward barring a reacceleration in density growth.

In summary, if Airbnb really was a material threat to PCLN, we should have seen it by now, and maybe we did. But moving forward, we do not believe Airbnb will have a significant impact on PCLN’s room-nights growth.

Let us know if you have questions, or would like to discuss in more detail.

Hesham Shaaban, CFAManaging Director@HedgeyeInternet

Todd JordanManaging Director@HedgeyeSnakeye

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05/16/16 07:52 AM EDT

CHART OF THE DAY: What Works When Yield Spread Hits YTD Lows

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

"... Maybe that’s why everyone is getting long the Gold chart again. As you can see in today’s Chart of The Day, they did so when the Yield Spread started to break down in 2011 too.

With the 10yr Yield falling another -8 basis points last week to 1.71%, the Yield Spread (10yr yield minus 2yr yield) pancaked to a fresh YTD low of 95 basis points last week. Flapjack flattening is not bullish for the Financials. It’s bullish for Utes, baby!"

Absurd Forecasts

Timing matters. Anyone who runs their own money and/or works on the buy-side knows this. That’s how we get paid. Wall Street & Washington Establishment economists and strategists have a different compensation scheme.

On the topic of timeliness, Phil Tetlock reminded us in a chapter of Superforecasting titled Keeping Score, “they’re relying on a shared implicit understanding, however rough, of the timeline they have in mind… as time passes, memories fade, and tacit time frames that once seemed obvious to all become less so” (pg 52).

We obviously make plenty of mistakes. But we try to be crystal clear on timing. Our call since July of 2015 has been that Q2 of 2016 has the highest probability of what looks like recessionary US economic data of #TheCycle. I wanted to reiterate that this morning.

Back to the Global Macro Grind…

US Retail Sales “beat Wall Street expectations” on Friday and the US Retail Stocks (XRT) careened to the downside taking them to the edge of crash mode (greater than 20% decline from #TheCycle peak) at -19.4% since July of 2015.

For US Growth Bulls (not to be confused with stagflation realists) the month of May looks a lot more like #TheCycle than March did. The SP500 has been down for 3 straight weeks and, don’t look now, but is down for 6 of the last 8 and back to flat YTD.

In addition to the Retail Sector (XRT), leading last week’s US Equity decline were:

Consumer Discretionary Stocks (XLY) -1.5% week-over-week to -0.1% YTD

Small Cap Stocks (Russell 2000) -1.1% week-over-week to -2.9% YTD

Financials (XLF) -1.1% week-over-week to -4.0% YTD

Since it would have been absurd for me to chase charts in March-April and tell you to buy #LateCycle Sector Styles while maintaining the most bearish US GDP forecast on Wall Street, I guess I don’t have to be the macro moron for May-to-date!

Meanwhile, the Old Wall’s media continues to run absurd headlines like this:

“SP500 Still Cheap Based On The Fed Model” –Bloomberg

So I still say short what appears to be “cheap” and keep buying what continues to get more expensive:

Utilities (XLU) were up another +1.1% last week to +14.1% YTD

The Long Bond (TLT) was up another +1.1% last week to +9.8% YTD

Municipal Bonds (MUB) were up another +0.3% last week to +1.9% YTD

Oh, I know. Munis are so boring. Indeed. And so is the return of one’s capital during a #LateCycle consumption and employment slow-down vs. chasing hopeful charts to get a return on capital of greater than 0%.

Maybe that’s why everyone is getting long the Gold chart again. As you can see in today’s Chart of The Day, they did so when the Yield Spread started to break down in 2011 too.

With the 10yr Yield falling another -8 basis points last week to 1.71%, the Yield Spread (10yr yield minus 2yr yield) pancaked to a fresh YTD low of 95 basis points last week. Flapjack flattening is not bullish for the Financials. It’s bullish for Utes, baby!

In other macro market news last week:

The US Dollar put together its 2nd up week in a row, closing +0.8% on the week to $94.60 and -4.1% YTD

Gold dropped -1.5% on that, correcting to +20.1% YTD

And Dr. Copper got pounded for a -3.6% Quad4 #Deflation, taking it back into the red at -2.2% YTD

Or was the Doctor ill due to “Chinese Demand Slowing”? Since mostly everything in macro (and life) is multi-factor and multi-duration, I won’t deny China’s export/import data slowing mattered. But so did markets looking more like Quad4 than Quad3.

As a reminder, our non-absurd specificity on timing has the USA moving from Quad3 to Quad4 in Q2. What happens in Quad4 is that the US Dollar RISES as US Interest Rates FALL. This is what happens when bad equals bad. People go to cash.

The only outlier on Quad4 last week was Oil ramping +3.7%. That, of course, is a huge problem for US GDP. If the BEA doubles the Deflator to 1.6%, that is. If they used the Fed’s preferred calculation for inflation, the US would already be in a #Recession.

If you’re keeping score on all of this:

A) The Fed wants to call the stock market “cheap” using their “model”

B) But the Fed doesn’t want to calculate GDP using their model’s definition of inflation

Growth Bears

Client Talking Points

USD

Welcome to #Quad4 (Rates Down, Dollar Up). The USD has been up for 2 straight weeks and up for 3 of the last 4, holding our long-term TAIL risk level of 92-93 support. The 90-day inverse correlation between the SPX and USD is -0.77.

OIL

On its own path (for now) +3.7% week for WTI despite Dollar Up and up another +1.8% this morning getting closer to the top-end of our refreshed immediate-term risk range = $43.69-47.80. Oil Up = GDP Deflator needs to go up (GDP down).

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.

Asset Allocation

CASH

US EQUITIES

INTL EQUITIES

COMMODITIES

FIXED INCOME

INTL CURRENCIES

5/15/16

60%

3%

0%

6%

25%

6%

5/16/16

58%

2%

0%

7%

27%

6%

Asset Allocation as a % of Max Preferred Exposure

CASH

US EQUITIES

INTL EQUITIES

COMMODITIES

FIXED INCOME

INTL CURRENCIES

5/15/16

60%

9%

0%

18%

76%

18%

5/16/16

58%

6%

0%

21%

82%

18%

The maximum preferred exposure for cash is 100%.
The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company

Ticker

Sector

Duration

XLU

Utilities (XLU) remains our favorite sector on the long side as Financials (XLF) remains our favorite sector on the short side. Current global macro positioning is squarely behind a continuation in the reflation trade as evidenced by commodity leveraged credit spreads, global macro futures and options positioning, and forward-looking volatility expectations. Global macro futures and options positioning show a market that is leaning long of commodities and short of U.S. dollars. Corporate credit as a % of GDP remains at cycle highs, capital markets activity has dried up significantly, and credit extension is tightening nationwide according the most recent Fed Senior Loan Officer survey.

MCD

For some perspective on the Macro environment and why we favor companies like McDonald's (MCD), here's an excerpt from the Early Look written by Hedgeye CEO Keith McCullough:

“Taking a step back, don’t forget where US Consumers (70% of GDP) were at this time last year:

US Employment Growth (NFP) was putting in a cycle peak

US Consumer Confidence was putting in a cycle peak

US Consumption Growth was putting in a cycle peak

Peak. Peak. #Peak!

And what happens when you start to lap the cycle peak? Well, instead of crappy Baby Boom capacity putting up mediocre (barely positive) same store sales at the peak, they look even crappier on the back side of the cycle."

That's why we like large-cap, low-beta, liquid companies like McDonald's in this tumultuous market environment. Case in point, earlier in the week, MCD hit an all-time high. Since we added the company to Investing Ideas, it is up almost 30%.

Stick with it. Restaurants analyst Howard Penney reiterates his "road to $150" call, implyling more than 15% upside from here.

TLT

Credit markets are one of the major beneficiaries (maybe the largest) of the reflation trade since February. While yield spread compression has been a positive for Long Bonds (TLT, ZROZ), a perceived monetary policy shift and a collapse in bond market volatility expectations have been a positive for Junk Bonds (JNK), but we don’t expect it to continue.

With growth continuing to slow alongside consensus positioning broadly, downside deflation risk is on the table. As we’ve highlighted on a daily basis, consumption growth and labor market growth peaked in Q1 2015 and both are slowing alongside a continued corporate profits slowdown. This mix:

Smells like incremental deflation on the margin;

Is a huge risk for high yield credit (JNK);

Did we mention TLT and ZROZ were up 4.4% and 2.1% respectively last week? Not bad with U.S. #GrowthSlowing.

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